Perhaps you know someone who’s had success in the home-flipping industry. Maybe you think it would be fun to find a property, fix it up, and put it back on the market to see what profit you could make. There’s certainly potential to see high returns on your initial investment; however, it’s important to learn how to successfully flip houses before you consider making your first purchase. This article will help you consider whether home flipping could be a good profession for you to pursue.
Can you handle the risk?
The term “home flipping” almost creates unrealistic expectations because it sounds overly flippant or casual. Home flipping is a serious endeavor, and anyone considering getting into the profession should take the task seriously. It’s a job that comes with a heavy amount of risk but can also offer high rewards if you can do it well. Keep in mind that your profits can vary on each property you sell. You’re also subject to the current condition of the local market. You could buy a home and add 20 percent to its value only to see the market quickly drop. In this scenario, you would have to continue making payments while you wait for the home to sell, and it may not happen as quickly as you would like. Think carefully about what you’re getting yourself into, and make sure you’re prepared for everything that lies ahead.
Are you prepared for unexpected costs?
It’s a given that you’ll have to put forth some of your own money when you’re working to flip a house. Also, you probably already understand that materials, application fees, architects, contractors, and other expenses related to home renovations aren’t free. However, it’s important to be aware that unexpected costs can arise while renovating a home, so you’ll want to plan ahead by setting aside more cash than you think you’ll need to finish each project. You also shouldn’t be surprised if construction takes longer than you initially expected.
How will you secure your funding?
Some home flippers will use conventional loans to fund their home purchase. You may already have a good understanding of what this process involves. As a reminder, you’ll have to put down some of your own cash as a down payment. The exact amount depends on your loan type, but most loans require at least three percent of the home’s total cost. The closing costs are an additional expense ranging between two to five percent of the home’s overall value. Some lenders will require a larger down payment for borrowers looking to purchase a flip house or an investment property.
This isn’t your only option for funding. You can pursue a hard money loan, for example. These loans are sometimes easier to qualify for and are popular among home flippers. The downside is that they come with a higher interest rate, so you’ll want to work quickly to repay the loan sooner rather than later. Some investors will borrow from the equity they have in their current home. This is called a Home Equity Line of Credit (HELOC). You can borrow up to 80 percent of the equity that you have in your current home to put toward the purchase of another house. Be prepared for a variable interest rate, and know that this will likely extend the life of your current mortgage.
Do you know what a good flip home looks like?
Becoming a home flipper requires knowing where to find good houses to flip. Since you’re looking for homes you could repair or renovate and then sell for a higher price, the first place you look probably won’t be the same as if you were shopping for a home you planned to live in yourself. Many home flippers will look for homes at auctions or by connecting with wholesalers.
You’ll also want to study the 70 percent rule. This is a calculation that many home flippers use to determine if a project is worth their time. The 70 percent rule dictates that home flippers shouldn’t spend more than 70 percent of the after-renovation value to purchase the home. If you spend more than 70 percent of the home’s after-repair value before you put in the time and money needed to get the house ready to sell, it won’t be worth your time.
What renovations will you make?
The improvements you make to each property will vary based on the home itself. As a general rule, you’ll want to think about what renovations or upgrades offer the greatest ROI. Not all home improvements are created equally. For some homeowners, the thought of expanding a primary suite or putting in a pool sounds appealing, but these additions don’t have a history of returning the upfront cost. On the other hand, many people find that minor kitchen and bathroom renovations can provide a solid return. Buyers are also interested in homes with greater energy-efficient features and upgraded outdoor living spaces.
Who can help me shop for a house to flip?
Reach out to the Live Tahoe Team if you’re looking for someone to help you find the best Lake Tahoe homes for sale. Chris and Brooke Hernandez often work with home flippers, and they understand the unique questions and concerns that flippers usually bring to the table. They will help you find the properties that offer the highest potential and use their expert negotiating skills to ensure the best deals. They are standing by, ready to help you however they can.